Page 2 of 4 FirstFirst 1234 LastLast
Results 11 to 20 of 32

Thread: Can the NATIONAL DEBT be demystified?

  1. Top | #11
    Veteran Member Lumpenproletariat's Avatar
    Join Date
    May 2014
    Location
    ^ Why don't I get any pretty jewels? Waaaaa!
    Posts
    2,006
    Rep Power
    28
    Quote Originally Posted by Playball40 View Post
    Principal is a liability while interest is the expense. You wouldn't see liabilities on an expense chart. That's about as simple as I can make it.
    "liability"?

    Whatever it's called, there is no payment of "principal" per se to the bondholders -- Do I have that right?

    Or rather, the only payment to them is the interest, and that finally totals up to more than the original principal -- Right? So, outside the interest only, there is no payment to them. (Or the payback of "principal" and the interest payments are really the same thing, not 2 separate payments as I was thinking.)

    It still doesn't make sense to me -- How do the bondholders ever make a profit? -- but I don't care any more, if I now have it straight that there's no such thing as a separate payment of "principal" to them which would have to be paid from some source like the interest is.

  2. Top | #12
    Contributor DrZoidberg's Avatar
    Join Date
    Nov 2007
    Location
    Copenhagen
    Posts
    9,234
    Archived
    5,746
    Total Posts
    14,980
    Rep Power
    61
    As I understand it, it's not a major problem since if other countries buy dollars, where are they going to invest them? That's right, USA. So USA benefits. As long as USA has a healthy economy debt is a non-issue. It's the power of USA that allows this. Sure, if China owns loads of stuff in USA they can syphon off winnings to China. But that's missing the point. The reason they can syphon off money is because they've with their investment (ie buying the loan) put money into USA, and is therefore expanding the US economy more than they are syphoning off.

    It's easy to confuse national debt as if it's a goldmine. If someone else owns it then we get no money from it. But that's not how it works. It's more like a goldmine that makes the country richer no matter who owns it.

    What killed Venezuela was the fact that nobody was interested in buying their money, because their economy is garbage.

    It's of course never a good idea to owe other people money. A nice thing with having a healthy economy and not owing other people is that when the shit hits the fan and you need funds fast people are there to give it to you. This is what killed the Spanish economy and made them lose the Netherlands. When they needed to raise money fast to quell the rebellion, they couldn't. In hindsight it would have been wise of Spain not to have borrowed up to the rafters before this.

    This is essentially how England took over India. Short story they let the Indian princes borrow money to fight wars against each other. This would not have been a problem if they would have been more powerful than Great Britain. The problem was that they weren't. Which gave Great Britain the excuse go in and protect "what was there's". Which, technically China could do in USA if USA, for whatever reasons, don't honor the fact that China owns a lot of dollars in USA and have used that to own property and companies in USA.

    It's all about power. If you're the biggest guy on the block there's other rules for you. What kills smaller fish just makes you richer.

  3. Top | #13
    Veteran Member
    Join Date
    Dec 2017
    Location
    Land of Smiles
    Posts
    1,231
    Rep Power
    15
    Quote Originally Posted by Lumpenproletariat View Post
    Whatever it's called, there is no payment of "principal" per se to the bondholders -- Do I have that right?

    Or rather, the only payment to them is the interest, and that finally totals up to more than the original principal -- Right?
    Wrong. Completely wrong.

    If you buy a $1000 Treasury bond with a 2% interest rate, then you receive $10 every six months for ten years (or whatever the bond's term is) and then receive an additional $1000 (the "principal") at the end of the ten years. (If you buy the "inflation-protected bond" offered by Treasury you receive more than $1000 at the end of the term.)

  4. Top | #14
    Veteran Member Lumpenproletariat's Avatar
    Join Date
    May 2014
    Location
    ^ Why don't I get any pretty jewels? Waaaaa!
    Posts
    2,006
    Rep Power
    28

    If PRINCIPAL is paid separately from interest, what source is the PRINCIPAL paid from?

    Quote Originally Posted by Swammerdami View Post
    Quote Originally Posted by Lumpenproletariat View Post
    Whatever it's called, there is no payment of "principal" per se to the bondholders -- Do I have that right?

    Or rather, the only payment to them is the interest, and that finally totals up to more than the original principal -- Right?
    Wrong. Completely wrong.

    If you buy a $1000 Treasury bond with a 2% interest rate, then you receive $10 every six months for ten years (or whatever the bond's term is) and then receive an additional $1000 (the "principal") at the end of the ten years. (If you buy the "inflation-protected bond" offered by Treasury you receive more than $1000 at the end of the term.)
    OK, assuming that's correct, then the $1000 you receive ("principal") at the end is not "interest" and so is not part of the "interest on the debt" section of the budget pie chart.

    So, where does that $1000 come from? It's not shown in the pie chart, so it's not paid from the total revenue (tax revenue + new debt). So where does it come from?

    Or, could it be that it is part of that "interest on the debt" section of the budget? in which case that "interest on the debt" label is incorrect? I've been assuming that "interest" means literally "interest" and not anything else. But if it's both interest AND principal, then that "interest on the debt" part of the budget is mostly principal rather than interest, and it's mislabeled.

    That "principal" does have to be paid out of some source, does it not?

  5. Top | #15
    Veteran Member
    Join Date
    Dec 2017
    Location
    Land of Smiles
    Posts
    1,231
    Rep Power
    15
    Quote Originally Posted by Lumpenproletariat View Post
    Quote Originally Posted by Swammerdami View Post
    Quote Originally Posted by Lumpenproletariat View Post
    Whatever it's called, there is no payment of "principal" per se to the bondholders -- Do I have that right?

    Or rather, the only payment to them is the interest, and that finally totals up to more than the original principal -- Right?
    Wrong. Completely wrong.

    If you buy a $1000 Treasury bond with a 2% interest rate, then you receive $10 every six months for ten years (or whatever the bond's term is) and then receive an additional $1000 (the "principal") at the end of the ten years. (If you buy the "inflation-protected bond" offered by Treasury you receive more than $1000 at the end of the term.)
    OK, assuming that's correct, then the $1000 you receive ("principal") at the end is not "interest" and so is not part of the "interest on the debt" section of the budget pie chart.

    So, where does that $1000 come from? It's not shown in the pie chart, so it's not paid from the total revenue (tax revenue + new debt). So where does it come from? [my emphasis]

    Or, could it be that it is part of that "interest on the debt" section of the budget? in which case that "interest on the debt" label is incorrect? I've been assuming that "interest" means literally "interest" and not anything else. But if it's both interest AND principal, then that "interest on the debt" part of the budget is mostly principal rather than interest, and it's mislabeled.

    That "principal" does have to be paid out of some source, does it not?
    You are correct: Nobody writes "interest" to denote "interest plus principal."

    Two questions for you before proceeding:

    (1) You write "It's not shown in the pie chart, so it's not paid from the total revenue (tax revenue + new debt)." Please link to your pie chart. No, I do NOT want the "revenue pie chart"; I want to see the pie-chart YOU refer to that is labeled "total revenue (tax revenue + new debt)."

    (2) What is your REAL question? Are you thinking of buying such bonds? Are you interested in accounting details? Or are you trying to understand the big picture of government finance?

  6. Top | #16
    Veteran Member Lumpenproletariat's Avatar
    Join Date
    May 2014
    Location
    ^ Why don't I get any pretty jewels? Waaaaa!
    Posts
    2,006
    Rep Power
    28
    Quote Originally Posted by Swammerdami View Post
    Quote Originally Posted by Lumpenproletariat View Post

    OK, assuming that's correct, then the $1000 you receive ("principal") at the end is not "interest" and so is not part of the "interest on the debt" section of the budget pie chart.

    So, where does that $1000 come from? It's not shown in the pie chart, so it's not paid from the total revenue (tax revenue + new debt). So where does it come from? [my emphasis]

    Or, could it be that it is part of that "interest on the debt" section of the budget? in which case that "interest on the debt" label is incorrect? I've been assuming that "interest" means literally "interest" and not anything else. But if it's both interest AND principal, then that "interest on the debt" part of the budget is mostly principal rather than interest, and it's mislabeled.

    That "principal" does have to be paid out of some source, does it not?
    You are correct: Nobody writes "interest" to denote "interest plus principal."

    Two questions for you before proceeding:

    (1) You write "It's not shown in the pie chart, so it's not paid from the total revenue (tax revenue + new debt)." Please link to your pie chart. No, I do NOT want the "revenue pie chart"; I want to see the pie-chart YOU refer to that is labeled "total revenue (tax revenue + new debt)."
    OK, I'm not using the "pie chart" as a source for anything, except that it's supposed to show the entire budget, which has typically been 4 to 5 trillion in recent years. I.e., it shows all the spending, which almost always exceeds the tax revenue. So the "pie chart" shows where all the spending goes -- right?

    And every year this spending exceeds the tax revenue. Except about 1997-2000 we had some balanced budget years, so in those years the spending, shown in the chart, was about the same as the tax revenue, so no deficit.

    But the spending, which all has to be paid from something, is all shown in that chart. It's paid from the tax revenue + the new debt = bonds sold, and that new debt is PRINCIPAL, or extra revenue available to be spent, which has to repaid later along with interest added and also to be paid later. That interest is shown in the pie chart, or is part of the spending. The reason that sector of the chart is shown is that it's something paid, as part of the budget. However, there is no PRINCIPAL on the debt shown anywhere in the chart, meaning that principal is NOT paid from the total revenue, because everything shown there is the current budget which is paid from the total revenue, which has to be tax revenue + new debt.

    Right?

    The tax revenue alone does not pay the whole budget, because of the deficit. So the rest has to be paid from the new debt -- right? The total spending has to come from the tax revenue plus the new debt (deficit).

    (Of course a surplus year could mean there's some new issuing of bonds which might then go toward paying a future deficit or something -- that's a minor detail. There's hardly ever any surplus.)


    (2) What is your REAL question? Are you thinking of buying such bonds? Are you interested in accounting details? Or are you trying to understand the big picture of government finance?
    Only the latter, especially the nature of the debt per se -- the principal and interest. I'm missing something if the principal (from earlier debt) is actually paid, separately, in addition to interest which is paid, and yet it's not part of the total spending (budget) as shown in the pie chart. Where is it paid from? All the charts say the same: they divide the budget up into categories -- and most of them show the "interest" category (or they combine that with another category, but it's always there). But there's never any "principal paid on the debt" category.

    I don't believe any theory saying that the charts are meaningless or contradict each other, someone makes it up or they're fiction, etc. I assume they're generally correct. It's standard for the "interest" section to be shown (or included in a section shown), and yet no "principal on the debt" is ever shown.

    I want the explanation for this (where is the principal paid from?). So far I can only assume that the principal is not paid separately but is somehow part of the "interest on debt" shown. Maybe this "interest" section of the chart really refers to much more than the 2 or 3% interest. Or perhaps there's spending not shown as part of the budget. But why would that be? If "interest" on debt is included as part of the budget, why wouldn't "principal" also be included? Are they not paid from the same source?

    Doesn't the principal (from earlier debt) have to be repaid from the same sources as the interest is paid from? i.e., from total revenue for that year, which is the tax revenue + new debt?

    Again:



    You see the gray "interest" section on the right. So "interest" paid is part of the budget, or the total spending. But there's never any "principal on the debt" section shown.

    Doesn't the total spending shown have to equal the total revenue (tax revenue + new debt)?

    Or here are several other pie charts: https://www.google.com/search?q=fede...w=1222&bih=756

  7. Top | #17
    Veteran Member
    Join Date
    Dec 2017
    Location
    Land of Smiles
    Posts
    1,231
    Rep Power
    15
    Hi, Lumpenproletariat.

    What you are missing — although part of your answer shows that you are aware of it — is that NEITHER borrowing NOR repayment of principal is shown on the pie charts.

    Let's work through an example.
    Suppose that in one year the government redeems $3 of bonds, pays $1 in interest, and spends $11 in other ways. Total of out-going money = $3 + $1 + $11 = $15 . . . . BUT ONLY $12 appears on the Spending Pie-chart. (Bond redemption is not shown.)

    In the same year suppose the government receives $9 in tax revenue and borrows $6. Total of in-coming money = $9 + $6 = $15 . . . . BUT ONLY $9 appears on the Revenue chart. (Borrowing is not shown.)

    In this example year, government paid $1 in interest, $3 in principal payments, and received $6 from new borrowing BUT ONLY the $1 interest appears on the pie-charts. In this example total debt increased by $6 - $3 = $3. Does this make sense?

    I tried to say the same thing earlier ...
    Quote Originally Posted by Swammerdami View Post
    The answer is very simple, I think. If you look at the total Spending (pie-chart) and subtract the total Revenue (pie-chart), the difference, if positive, is the increase in government debt. If the government repaid more principal than its additional borrowing then this difference would be negative. So you can determine the number you seek that way.

    You see the same thing on business income sheets or Form 1040. Interest paid or received may be an expense or income, but changes in principal go unmentioned.

    It may seem odd — interest and principal payments have similar character — but that's the way it is. (With effort I think you can Google up details of Treasury debt issues and retirements if you really need them.)
    ... but perhaps it will be clearer with the arithmetical example.

    Quote Originally Posted by Lumpenproletariat View Post
    OK, I'm not using the "pie chart" as a source for anything, except that it's supposed to show the entire budget, which has typically been 4 to 5 trillion in recent years. I.e., it shows all the spending, which almost always exceeds the tax revenue. So the "pie chart" shows where all the spending goes -- right?

    And every year this spending exceeds the tax revenue. Except about 1997-2000 we had some balanced budget years, so in those years the spending, shown in the chart, was about the same as the tax revenue, so no deficit.
    This is correct EXCEPT that bond redemptions (i.e. principal payments) are NOT included as "Spending."
    So (spending minus revenue) = change in debt.

    Look at the chart at the bottom left of this pdf report from the U.S. Treasury, and see a chart "Marketable issues vs Marketable redemptions." Look at FY2018. You will see that there was a bit less than $10 trillion in "marketable issues" and a bit less than $9 trillion in "marketable redemptions." So debt increased by $1 trillion that year. The $10T in issues does NOT appear as revenue. The $9T in redemptions does NOT appear as spending. The only trace left on those pie-charts is the increase in debt ($1T) which manifests as Total_Spending Minus Total_Revenue.

    (Note, by the way, that in an alternate universe where Principal payments WERE included on the "Spending Pie-Chart" that piece of the pie would totally dwarf all the other pie pieces put together!)

    This is the same answer I and others have already given in the thread. Tell me my patience has been rewarded! :-)


    One important caution. If I borrow $1 for a week (interest-free to keep it simple), and repay it every Friday by borrowing another $1, my total debt will be exactly $1 at any point. BUT accounting will show me with 52 weekly loans in the year, so $52 of debt issuance and $52 in redemptions for that 52-week year! Bear that effect in mind when you look at the totals for "GAS" debt or you will gasp in horror! :-)

  8. Top | #18
    Veteran Member Lumpenproletariat's Avatar
    Join Date
    May 2014
    Location
    ^ Why don't I get any pretty jewels? Waaaaa!
    Posts
    2,006
    Rep Power
    28
    Quote Originally Posted by Swammerdami View Post
    What you are missing — although part of your answer shows that you are aware of it — is that NEITHER borrowing NOR repayment of principal is shown on the pie charts.

    Let's work through an example.
    Suppose that in one year the government redeems $3 of bonds, pays $1 in interest, and spends $11 in other ways. Total of out-going money = $3 + $1 + $11 = $15 . . . . BUT ONLY $12 appears on the Spending Pie-chart. (Bond redemption is not shown.)

    In the same year suppose the government receives $9 in tax revenue and borrows $6. Total of in-coming money = $9 + $6 = $15 . . . . BUT ONLY $9 appears on the Revenue chart. (Borrowing is not shown.)

    In this example year, government paid $1 in interest, $3 in principal payments, and received $6 from new borrowing BUT ONLY the $1 interest appears on the pie-charts. In this example total debt increased by $6 - $3 = $3. Does this make sense?

    I tried to say the same thing earlier ...
    Quote Originally Posted by Swammerdami View Post
    The answer is very simple, I think. If you look at the total Spending (pie-chart) and subtract the total Revenue (pie-chart), the difference, if positive, is the increase in government debt. If the government repaid more principal than its additional borrowing then this difference would be negative. So you can determine the number you seek that way.

    You see the same thing on business income sheets or Form 1040. Interest paid or received may be an expense or income, but changes in principal go unmentioned.

    It may seem odd — interest and principal payments have similar character — but that's the way it is.


    (With effort I think you can Google up details of Treasury debt issues and retirements if you really need them.)
    ... but perhaps it will be clearer with the arithmetical example.

    . . .

    Look at the chart at the bottom left of this pdf report from the U.S. Treasury, and see a chart "Marketable issues vs Marketable redemptions." Look at FY2018. You will see that there was a bit less than $10 trillion in "marketable issues" and a bit less than $9 trillion in "marketable redemptions." So debt increased by $1 trillion that year. The $10T in issues does NOT appear as revenue. The $9T in redemptions does NOT appear as spending. The only trace left on those pie-charts is the increase in debt ($1T) which manifests as Total_Spending Minus Total_Revenue.

    (Note, by the way, that in an alternate universe where Principal payments WERE included on the "Spending Pie-Chart" that piece of the pie would totally dwarf all the other pie pieces put together!)

    This is the same answer I and others have already given in the thread. Tell me my patience has been rewarded! :-)
    You're a good sport.


    One important caution. If I borrow $1 for a week (interest-free to keep it simple), and repay it every Friday by borrowing another $1, my total debt will be exactly $1 at any point. BUT accounting will show me with 52 weekly loans in the year, so $52 of debt issuance and $52 in redemptions for that 52-week year! Bear that effect in mind when you look at the totals for "GAS" debt or you will gasp in horror! :-)
    OK, you have answered how the "principal" is repaid later -- i.e., it's from the new debt which will similarly be repaid later by still further new debt, and so on, until eventually, in 10 or 100 or 1000 years from now, someone has to get shafted. These annual repayments now are in the range of 10 trillion, each year -- give or take. 10 trillion goes out, replaced by another 10 trillion (hopefully) coming in.

    And the interest is paid from current tax revenue, like the rest of the budget items.

    But what about the annual budget deficit? Where is that paid from? Is that also paid from the new debt, like the redemptions (repayments of principal) are?

    I.e., if the budget is hypothetically 5 trillion (paying for military, health, welfare, etc.) and the tax revenue is only 4 trillion, is that extra 1 trillion also paid from the new debt being issued? Do they have to issue an extra 1 trillion to pay the deficit, which they otherwise would not do?

    I have more to ask later, if you want to keep at it. But I first want to be certain on the above points.

  9. Top | #19
    Veteran Member
    Join Date
    Dec 2017
    Location
    Land of Smiles
    Posts
    1,231
    Rep Power
    15
    Quote Originally Posted by Lumpenproletariat View Post
    But what about the annual budget deficit? Where is that paid from? Is that also paid from the new debt, like the redemptions (repayments of principal) are?
    Yes. The ($10 trillion minus $9 trillion) in the 2018 example WAS the budget deficit that year.

  10. Top | #20
    Veteran Member Wiploc's Avatar
    Join Date
    Dec 2002
    Location
    Denver
    Posts
    2,973
    Archived
    14,058
    Total Posts
    17,031
    Rep Power
    73
    Quote Originally Posted by Lumpenproletariat View Post
    But what about the annual budget deficit? Where is that paid from? Is that also paid from the new debt, like the redemptions (repayments of principal) are?
    The United States has its own fiat currency. So a deficit doesn't necessarily have to be "paid" from anywhere.

    To smooth out the business cycle, we're supposed to run deficits during recessions and surpluses during booms. We like a little inflation, so those shouldn't cancel each other out; our surpluses should be smaller than our deficits.

    A deficit that is "paid for" by borrowing wouldn't be able to do the job of softening a recession. So, sometimes, and to some extent, deficits don't get "paid for."

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •